Correlation Between Altria and Capital One

Can any of the company-specific risk be diversified away by investing in both Altria and Capital One at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Altria and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Altria Group and Capital One Financial, you can compare the effects of market volatilities on Altria and Capital One and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Altria with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and Capital One.

Diversification Opportunities for Altria and Capital One

0.45

Correlation Coefficient

Altria  Capital One

Very weak diversification

The 3 months correlation between Altria and Capital is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial and Altria is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Altria Group are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Altria i.e., Altria and Capital One go up and down completely randomly.

Pair Corralation between Altria and Capital One

Assuming the 90 days horizon Altria Group is expected to generate 1.15 times more return on investment than Capital One. However, Altria is 1.15 times more volatile than Capital One Financial. It trades about 0.3 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.06 per unit of risk. If you would invest  75,799  in Altria Group on March 14, 2024 and sell it today you would earn a total of  10,301  from holding Altria Group or generate 13.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Altria Group  vs.  Capital One Financial

Altria Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Altria showed solid returns over the last few months and may actually be approaching a breakup point.

Capital One Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Altria and Capital One

The main advantage of trading using opposite Altria and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria position performs unexpectedly, Capital One can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Capital One will offset losses from the drop in Capital One's long position.

The idea behind Altria Group and Capital One Financial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.